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Investors seek ETFs to tap HK-Shanghai scheme
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WITH the Hong Kong-Shanghai Stock Connect set to kick off in mid-October, offshore investors have swarmed into a number of Hong Kong-listed exchange-traded funds that invest in a portfolio of A shares.
The first week of this month has seen more than HK$2 billion (US$258 million) flowing into several A-share ETFs, which are funds listed on the Hong Kong stock exchange and use offshore yuan to invest in shares traded on the Shanghai Stock Exchange, the Shanghai Securities News reported.
Zhang Xiaojun, spokesperson for the China Securities Regulatory Commission, has said the stock connect scheme will do a test run on October 13.
Interest in shares traded on the Chinese mainland’s market continues to rise as many A-share ETFs are now traded at a premium to the value of underlying shares they invest in.
Some Chinese companies listed in both Shanghai and Hong Kong have a price difference. A-share ETFs have provided an opportunity for investors to take advantage of some dual-listed firms whose shares in Shanghai traded at a discount to those in Hong Kong.
The Hang Seng China AH Premium Index, an index tracking the average price difference for dual-listed Chinese companies in the Shanghai and Hong Kong bourses, has been trading below 100, indicating that dual-listed companies’ shares on average are still traded cheaper in Shanghai.
However, HSBC said in a recent research report that the price difference between A and H shares is expected to be gradually close after the stock connect scheme is launched.
In addition to A shares with price discount to the listed firm’s H shares, companies with lower valuation than comparable firms, those with high dividend or with dominant market shares will be favored by offshore investors, said Chen Li, chief China equity strategist at UBS Securities.
Besides, sector players that are scarce in the other market will also have potential to outperform, and many analysts have identified beverages, especially liquor, auto and defense stocks as popular choices among northbound investors, or offshore investors buying A shares in the upcoming stock connect scheme.
The scheme to allow oversea investors to gain direct exposure to China’s capital market has also rekindled confidence among retail investors on the mainland. Many expected the scheme could end the bearish performance of the mainland stock market over the years.
The Shanghai Stock Exchange has risen above 13 percent to close at 2,331.95 points on Friday since the second half of this year. Meanwhile, data from the China Securities Depository and Clearing Corp show that over 170,000 A-share accounts were opened during the week that ended on August 24.
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